Raising the minimum wage, strengthening workplace policies, restoring the Earned Income Tax Credit, increasing funding for education and encouraging unionization would help correct dramatic wage losses in Michigan since 1979. Wages in the state have dropped over the past 35 years, particularly for low- and middle-wage men. Over this same period of time, women’s wages, participation in the labor force and educational attainment have increased somewhat. Yet, gender-based wage disparities persist. The labor and economic policies suggested above would boost the pay of Michigan workers of all genders, and help close the gender wage gap.

Wage Trends and the Gender Wage Gap

For a number of years in the mid-twentieth century, wages rose in tandem with productivity. Between 1949 and 1979, productivity (a measure of the value of goods and services that is produced, on average, per each hour of work) increased 108.1% nationwide, while wages for non-supervisory workers increased 93.4%.1 This suggests that economic prosperity was widely shared by businesses and employees, alike. After 1979, however, the link between productivity and wages began to break. Productivity continued to rise, though at a slower pace, while wages lagged substantially behind. Between 1979 and 2013, productivity grew 64.9%, but hourly wages rose just 8.2%.2

In Michigan, compensation for low- and mid-wage workers of prime working age3 fell substantially between 1979 and 2013.4 Real hourly wages dropped 13.4% for low-wage workers and 12.7% for mid-wage workers (see Appendix A.1). With the exception of the years 1998 to 2010, relatively high levels of educational attainment did little to curb this trend. The median hourly wages of prime age workers with bachelor’s degrees fell 4.3%, while wages for workers with master’s degrees or higher increased only 10.7%. Workers without a postsecondary education saw the steepest decreases: The wages of workers without a high school diploma dove 46.3%, while workers with only a high school education saw their wages decrease by 32.1% (See Figure 1 and Appendix A.2).

Men’s Wages in Michigan

The wages of many Michigan male workers fared worse than the state average. Low-wage men’s hourly earnings plummeted 31.2%, while mid-wage male workers’ wages fell 16.0%. The decline in male wages in Michigan continued even during the nationwide labor market strength of the late 1990s.5 The sharp wage decline abated just a bit during this time, but did not result in wage increases for male workers earning at or under the middle of the wage distribution (see Figure 2).

Michigan Women’s Wages

From 1979 to the late 1990s, wages for low- and mid-wage women declined or saw only modest improvements. However, beginning in the late 1990s, wages for these workers improved the most, averaging 14.6% between 1999 and 2010 for mid-wage women, and 11.3% for low-wage women, before dropping substantially after 2010. Overall, real hourly earnings for low-wage women increased only 4.2% in 2013 relative to 1979, and 10.1% for mid-wage women (see Figure 3).

While the rest of the Michigan workforce saw a decline or stagnation in their hourly earnings, the wages of the highest paid workers of any gender grew consistently – particularly of those earning at the top 10% of the wage distribution. Their wages increased between 8.3% and 39.7% from 1979 to 2013 (see Appendix A.1). Disparity in wage growth – with increases for a relatively small sector of the workforce and declines for the vast majority – is one of the most important factors influencing the shrinking of the middle class and the faltering of living standards in the country.6

Gender Wage Gap

As will be shown in the next two sections of this report, over the past three decades, women have increased their labor force participation and have obtained educational credentials at greater proportions than their male counterparts. These improvements help explain the rise in women’s wages7 – particularly for women earning in the top 20% of the wage distribution (see Figure 3 and Appendix A.1) – and the narrowing of the gender wage gap.

The gender wage gap – the difference between the earnings of women relative to men’s – began to improve nationwide in the late 1970s. According to one calculation, the nationwide gender wage gap decreased from 37.3% in 1979 to 17.2% in 2012. However, more than one-quarter of this improvement can be traced to the erosion of men’s wages, rather than to gains in women’s wages.8 As we saw above, the wages of Michigan men of prime working age, earning at or under the middle of the wage distribution, declined sharply – by as much as 31.2% between 1979 and 2013.

Economists caution that a narrowing of the wage gap based on decreases in men’s wages is problematic, as it hurts not only men, but also women. The same factors that harm men’s wages are also exerting a negative influence on women’s wages. If, for a time, protections against discrimination, higher levels of educational attainment and increased labor force participation helped curb the downward pressure on women’s wages, policy choices – such as monetary policy focusing on inflation rather than full-employment, the deregulation of industries, the weakening of labor standards, the erosion in the real value of the minimum wage, and decreased unionization – threaten to reverse these positive wage gains in women’s wages.9

Despite wage gains for women (and wage losses for men), Michigan women experience the seventh-widest gender wage gaps (26.3%) in the nation.11 On average, Michigan women working full-time year-round earned just $0.74 for every $1 a similarly employed man earned.12 The state’s gender wage gap has been stuck in the 70-cent range since 2005, despite nominal increases in the state’s wage floor13 (see Table 1). The wage gap for women of color is much wider: In 2012, an African American woman made just two-thirds what a man made ($0.67 for every $1), and a Hispanic woman earned a little over one-half ($0.54).14

The persistence of a gender wage gap is influenced in part by women’s continued over-representation in the low-wage workforce (see Table 2 and appendices C and D). Although women 16 years and over composed around half (49%) of Michigan’s overall workforce between 2008 and 2012, they represented well over two-thirds (69%) of the low-wage workforce.15 The share of women of prime working age who are employed in low-wage occupations was 20.8% in 2012, while for men this share was just 8.9%. This makes women in the state more than twice as likely as men to be low-wage workers.16

However, the over-representation of women in low-wage occupations does not, alone, explain the gender wage gap. High-earning women have not been spared the pernicious effects of wage disparity. In fact, they experience the highest wage gap among all groups in the wage distribution (see Appendix A.3). While low-wage women earn $1.53 less than men in the same wage group (a 12.91% difference) and have a wage gap of $0.13, women in the highest-wage group earn $9.67 less than their male counterparts (a 23.6% difference) and have a wage gap of $0.21.

Various research has found that a significant proportion of the wage gap (between 7% and 12%) cannot be explained away by women’s choices in occupation.19 This “unexplained” wage gap hurts even college-educated women many of whom, 10 years after graduation, earn just 69% of what men earn. One possible explanation is that when women become mothers, they experience a “motherhood penalty” that extends well beyond the time they are out of the workforce. Research suggests that employers are less likely to hire mothers compared with childless women, and that when they do hire mothers, they tend to offer these women lower salaries than their childless counterparts. Fathers, on the other hand, do not suffer a similar parental penalty.20 Differences in the treatment of men and women – and mothers and fathers – likely account for a significant portion of the unexplained wage gap, and the overall wage gap.

Women’s Contribution to the Economy

While the gender wage gap persists and the wages for the majority of women have stagnated, the contribution of female workers to the nation’s economy has increased over the past 35 years. If women had abstained from working outside the home from 1979 to 2012, the economy would be significantly smaller than it is now.21 Nationwide, the share of women working full-time year-round increased significantly, from 28.6% in 1979, to a peak of 44.2% in 2000, before decreasing slightly to 40.7% in 201222 in the wake of the Great Recession and the jobless recovery that followed.23 The increase in the share of mothers working full-time year-round was even more dramatic, rising from 27.3% in 1979 to 46.0% in 2007 and 44.1% in 2012.24 Women’s work hours nearly doubled between 1979 and 2007 – from 925 annual hours to 1,820 – and increased 80% from 1979-2012 (a figure that accounts for the effects of the recession).25 Employment trends for Michigan women are likely similar.

During this period, women’s contribution to their total household incomes also increased substantially, particularly for low-income families. While in 1979, low-income women contributed just over one-third (33.5%) of their total household earnings, by 2012 their contribution rose to nearly half (45.8%). For middle-income households, women’s contribution rose from 25.0% to 38.6%, and for wealthier households, from 23.8% to 33.5%.26

Through their increased participation in the labor market and the greater number of hours worked, women helped expand the nation’s economy by $1.7 billion (11%) from 1979 to 2012. This increase in the economy is equivalent to almost twice the combined contribution of the information, communications and technology industries in 2012.27

Demographic Portrait of Michigan Women

Women are the backbone of Michigan’s economy. In 2012, women made up over half (51.7%) of the state’s population of prime working age and a slightly smaller but highly significant share (48.9%) of the total employed population in this age group.28

Michigan women have relatively high levels of education. With the exception of professional and doctorate-level degrees, they hold higher shares of various postsecondary degrees compared to men, including 58.1% of bachelors and 57.1% of masters degrees (see Table 3).

When looking at the state’s female population, alone, we can observe that nearly half (45.3%) of Michigan women of prime working age hold postsecondary degrees of any type, including 20.6% with bachelor’s, 13.5% with an associate, and 9.4% with master’s degrees. Another 20.7% attended college but did not earn a degree (see Figure 4 and Appendix B).

Michigan men of this age group, in comparison, have significantly lower levels of postsecondary educational attainment. Only 37.6% of men in the state hold a postsecondary degree of any type, including 15.9% with a bachelor’s, 10.2% with an associate and 7.5% with a master’s degree. However, a higher percentage of men have doctorates or professional degrees (4.0%), than do women (1.8%).Total postsecondary educational attain-ment at the national level is 46.4% for women and 41.3% for men.

Over the past three decades, women’s participation in the labor force increased significantly, while men’s and the state’s average for all genders decreased. From 1979 to 2013, the labor force participation rate29 for women 16 years and older increased 4 percentage points from 50.7% to 54.9%, while men’s participation fell 13 percentage points from 79.0% to 66.5% (see Table 4). In 2012, women of prime working age had a much higher labor force participation rate (70.3%), making their contribution to the state’s economy vital. (Men’s labor force participation rate for this age group was 80.7%).

Michigan women are more likely than their male counterparts to live in poverty, despite increases in educational attainment and labor force participation. Of the state’s population of prime working age who are living in poverty, over half (54.7%) are women.30 In fact, the state’s poverty rate for women of this age group is 24.8% – nearly 6 percentage points higher than the rate for men.31

Female-Headed Households

The poverty rate of Michigan’s female-headed households in the prime working age group is higher than for women of this age group as a whole. Although these households had an employment rate of 70.8% in 2012, over one-quarter (27.7%) lived in poverty. Their median household income was just $35,030.32

Of the almost 315,300 low-income working families in Michigan, more than two in five (41.9%) are headed by women.33 Although mothers of very young children make up just 4.6% of the state’s workforce, they represent a higher share (6.9%) of the low-wage workforce.34 One in five (22.0%) of these mothers were employed in a low-wage occupation.

In 2012, significant shares of Michigan working households (whether headed by women or men, or both equally) received food assistance (formerly known as food stamps and now called the Supplemental Nutrition Assistance Program, or SNAP). Almost half (48.8%) of working families with household incomes below 200% of the federal poverty threshold received food assistance. The SNAP participation rate for families below 100% of poverty was even higher – close to three-quarters (70.3%).35

Median Wages in the Midwest: A Comparison

As we saw in the first section of this report, median wages dropped 12.7% in Michigan between 1979 and 2013. The drop was larger for low-wage workers (13.4%), while high-wage workers saw their wages increase by 8.3% or more (see Appendix A.1). Men’s wages declined more than women’s.

Much of the Midwest also experienced wage declines or stagnation. Illinois and Indiana both had negative real median wage growth, while wages stagnated in Wisconsin, Iowa and Missouri, which experienced growth between 0% and 2.3%. Minnesota, on the other hand, bucked the trend. The state saw real median wage growth of 11%, much of it occurring after 1997, around the time when the nation’s workers enjoyed the employment and wage benefits of a tight labor market. The difference in wage growth between Minnesota’s and Michigan’s wage trends between 1979 and 2013 is a whopping 23.7 percentage points (see Table 5 and Figure 5).

Men’s median wages throughout the Midwest also declined significantly – nearly all of it in the double-digit range. Michigan led the pack, with the steepest decline of 16.0%, while Minnesota, though unable to avoid negative growth, saw the smallest decline in the region: 4.9% (see Table 5 and Figure 6). Once again, the turning point seems to be the late 1990s, when men’s wage decline in Minnesota began to lose steam (and in fact, turned positive between 1999 and 2005) while in Michigan it continued on a downward trend that accelerated after 2009.

Although all Midwestern states experienced positive wage growth for women, Minnesota and Michigan stand out once again. Women in Minnesota saw the most cumulative wage growth in the region (40.1%), while Michigan women saw the least (10.1%). In 1979, women in Minnesota were paid 8.8% less than women in Michigan. But by 2013, the former’s wages had surpassed the latter’s. Minnesota women now earn 17.0% more than their Michigan counterparts. Unlike male wages, the diverging trends in female wages in Minnesota and Michigan began much earlier than the late 1990s. By 1982, women’s wages in Michigan had turned negative (2.5%), while in Minnesota they had turned positive (2.0%). This trend picked up steam in the late 1990s, resulting in the 30 percentage point gap that exists today.

What explains the dramatic differences seen in Minnesota and Michigan? One part of the answer points to deindustrialization. Over the past two decades, Michigan has struggled with a declining manufacturing sector, much of it concentrated around the auto industry. This industry, which throughout much of the twentieth century had expanded the middle class in Michigan – and especially in Detroit – began to falter with the global decline in manufacturing, foreign competition in the auto industry, and the increased automation of many assembly-line jobs.36 From 1990 to 2011, manufacturing employment in Michigan declined by 37% and employment earnings in this sector declined by a similar figure (35%). Deindustrialization and the near collapse of the auto industry led to a decade-long recession in the state, from which Michigan is still recovering. Minnesota was not as reliant on the manufacturing sector, and certainly not on the auto industry. During this same period of time, manufacturing employment in the state fell by a relatively smaller rate (11%), while related employment earnings fell 6%.37

While manufacturing was declining, the knowledge-based sector of the economy was expanding, and Minnesota was able to take advantage of it. The knowledge-based economy, in which today’s high-wage jobs are concentrated, can be defined as production and services based on knowledge-intensive activities – such as information technology, finance, insurance and private health care and social services.38 Between 1990 and 2011, Minnesota grew its employment in the knowledge-based economy by 60%, twice Michigan’s rate of 30%. Minnesota’s employment earnings in this sector expanded even more: 74%, more than twice Michigan’s 32% growth.39

While deindustrialization and the near collapse of the domestic auto industry were, to some extent, unavoidable and greatly impacted Michigan’s economy – something that Minnesota was mostly spared – that alone did not set these two states is such diverging economic paths. Policy choices have played an important role in their differing outcomes.

Minnesota is a high-tax state, which enables it to invest more in its residents. Since the early 1970s, Minnesota lawmakers have made the conscious choice to implement and protect various tax and fiscal reforms – collectively known as the “Minnesota Miracle” – that succeeded in curbing disparities in the quality of public education, and shifted more of the burden of financing local governments from property taxes to state income and sales taxes.40 Minnesota has a progressive state income tax rate that varies between 5.35% and 9.85%, with the higher tax rate reserved for wealthier Minnesotans. In contrast, Michigan has a flat income tax rate of 4.25%, which applies to everyone – rich or poor. In combination with other state and local taxes, Minnesota’s tax structure allowed it to collect $5,016 in taxes, per capita, in 2011. In contrast, Michigan’s combined state and local taxes, per capita in 2011, was just $3,655. Minnesota’s enhanced ability to collect revenue also allows it to spend more on services for its residents compared to Michigan: $4,443 per capita in Minnesota vs. $2,813 in Michigan.41

Minnesota’s spending priorities include early childhood education, K-12 education, higher education, the state’s social safety net, infrastructure and public transit – all of which are funded much more generously than in Michigan,42 and all of which help prepare its workforce for the demands of the modern global economy and give Minnesotans a chance to succeed – even in bad times.

The stark differences in wages seen in Minnesota and Michigan, therefore, should not come as a surprise. Minnesota’s wage gains are in great part the result of the state’s resolve to invest in the public good, while Michigan’s wage declines are the result of both a shift in the global economy and, most importantly, of policy choices that have hurt its working men and women.

Policy Recommendations

Raise the Minimum Wage and Eliminate the Tipped Wage. Raising the wage floor to $10.10 per hour would reduce poverty in the state (including child poverty), boost the state’s economy, and create thousands of jobs.43 Increasing the minimum wage, and in particular eliminating the tipped wage would also help reduce the gender wage gap. As discussed above, women are more likely than men to work in low-wage occupations, including jobs as servers in the restaurant industry where they make up 70% of the workforce.44 The Michigan Legislature recently passed a law that would increase the state’s minimum wage to $9.25 by 2018 and index it to inflation. This law also pegged the tipped wage to 38% of the regular minimum wage. While a step in the right direction, the increases would still leave many families in poverty, including thousands of Michigan children whose parents struggle to make ends meet on these wages.45 Increasing the wage floor to $10.10 or above and bringing the tipped wage to parity with the regular minimum wage would boost many families above poverty and narrow the gender wage gap.

Encourage Collective Bargaining. As discussed above, since the 1970s, wages have been eroding or stagnating for men and women earning at or under the middle of the wage distribution. Wages for higher-paid workers, on the other hand, have increased, resulting in an increase in wage inequality. These trends coincide with a decline in unionization rates – which fell to 13.1% in 2011 – and has resulted in the loss of worker’s bargaining power. Studies suggest that deunionization explains about a third of the growth of wage inequality among men and a fifth of the growth among women. Higher rates of union membership could curb wage erosion. Unionization enhances worker’s ability to bargain for better wages and usually results in higher wages for those who are covered by a collective bargaining contract. This “union wage premium” (as the phenomenon is known) is 17.3% higher wages for men, 9.1% for women, and 13.6% overall.46

Strengthen Workplace Policies. As discussed above, women’s contributions to the national economy have steadily increased since 1979. More women and mothers have entered the labor force and increased their work hours. Through their work, they have substantially expanded the nation’s economy. Women’s higher participation rate in the labor force means that workplace policies need to change to accommodate the needs of dual-income and single-parent families, especially for those who are in low-wage jobs. Michigan should enact legislation requiring paid family and medical leave and standards for scheduling, to help workers plan for and meet their family needs. Michigan should also increase its child care subsidy to be more in line with market rates, improving both the quality and affordability of child care options for low-paid workers. Evidence suggests that access to stable, high-quality child care increases labor force participation, reduces employee absenteeism and turnover, and helps workers maintain their employment.

Restore the State Earned Income Tax Credit (EITC). The EITC is a refundable tax credit that promotes work and offsets the tax burden of many low- and middle-income working families. In tax year 2012, the Legislature reduced the Michigan EITC from 20% to 6% of the federal credit. This change increased the taxes paid by many working families by 70%, with low-income households most affected. The EITC is a tool that has been proven to reduce poverty and boost the work efforts of many families, particularly for single-parent households with low educational attainment.47 Restoring the credit to 20% would encourage more of these households to join the workforce and increase their work hours. This, in turn, would increase the state’s labor force participation rate and over time increase those workers’ hourly earnings.

Increase Education Funding, Including Higher Education. As discussed in the section, “Median Wages in the Midwest: A Comparison,” wage trends in Michigan and Minnesota could not be more different. While wages dropped dramatically in Michigan (particularly for men), in Minnesota wages increased for the overall population and for women, and decreased only slightly for men. Although there are a number of factors that led to the different outcomes for these two states, Minnesota spends substantially more on the education of its residents, from pre-kindergarten to university. Minnesota’s higher rates of investment on education – and in particular, in higher education – not only produces a highly educated workforce and an attractive business climate for high-paying knowledge-based jobs, but it also curbs tuition increases at state colleges and universities. Lower tuition increases results in lower amounts of student loan debt, a type of debt that can reduce the discretionary income of student debtors and reduces their ability to fully participate in the consumer economy. From 2013 to 2014, tuition at public colleges and universities in Minnesota decreased 0.4%, which in Michigan it increased 2.1%.48

Acknowledgments:

I would like to extend a very special thank you to David Cooper (Economic Policy Institute) and Katherine Gallagher Robbins (National Women’s Law Center) for their assistance gathering and processing data. I am also grateful to Luke Reidenbach (California Budget Project), for his perceptive insights on wage trends.

Endnotes

Although more commonly referring to individuals between the ages of 25 and 54, in this report “population of prime working age” refers to persons 25 to 64 years of age. This expanded definition allows us to capture data for workers who are midway between the minimum age (62) for the receipt of partial Social Security benefits, and the age (66) for the receipt of full benefits and therefore near full-retirement. Unless otherwise noted, data in sections “Wage Trends and the Gender Wage Gap” and “Demographic Portrait of Michigan Women” will refer to this age group only.

Low-wage workers are those with hourly earnings in the 20th percentile of the wage distribution. Mid-wage workers are those with earnings exactly in the middle. High-wage workers are those with earnings in the 80th percentile, and top 10% are workers with earnings in the 90th percentile.

During the late 1990s, the nation as a whole experienced low levels of inflation and unemployment, a productivity surge that was mostly led by computer-based information technology, and an increase in the federal minimum wage. These events led to a short-lived but positive increase in hourly wages for workers of all gender at the national level. Michigan bucked this wage trend, however. For more information of the dynamics of the U.S. labor market during this period, see Lawrence F. Katz and Alan B. Krueger, “The High Pressure U.S. Labor Market of the 1990s,” Brookings Papers on Economic Activity, 1999; and Gavin Wright, “Productivity Growth and the American Labor Market: The 1990s in Historical Perspective,” Understanding the 1990s, in Paul Rhode and Gianni Toniolo (eds.), Cambridge University Press, 2006.

Ibid. The wage gap comparison is to earnings of non-Hispanic white males, who generally have the highest earnings among all men and whose earnings are, therefore, the benchmark on which the gender wage gap measurements (including those for minority women) are based.

Increases in the minimum wage could potentially affect women more than men, because women are more likely than men to be employed in low-wage occupations. See discussion of the over-representation of women in low-wage jobs, below.

The Great Recession officially lasted from December 2007 to June 2009. However, high levels of unemployment remain a problem in several states, including Michigan, which in June 2014 had an unemployment rate of 7.5%, the fourth highest in the nation and significantly above the national rate of 6.1%.

Op. Cit. Data refers to mothers in households with children under the age of 18.

Ibid.

Ibid. These figures are based on a “middle three quintiles” definition of middle-class. See Appelbaum et al. for other definitions of middle class and their respective data. See also Craig K. Elwell, The Distribution of Household Income and the Middle Class (Congressional Research Service, March 2014) for expanded definitions of middle class.

Ibid.

Current Population Survey, Annual Social and Economic Supplements, 2013. U.S. Census Bureau, CPS Table Creator.

The labor force participation rate is the share of the civilian population who are either working or looking for work relative to the total civilian non-institutional population, and should not be confused with the unemployment or the employment-to-population rates, which are difference measures. The labor force participation rate can be influenced by individuals’ decisions to pursue education or to drop out of the labor market altogether, particularly during economic downturns.

Current Population Survey, Annual Social and Economic Supplements, 2013, op. cit.

Helen Blank, Karen Schulman and Lauren Frohlich, Nearly One in Five Working Mothers to Very Young Children Work in Low-Wage Jobs, National Women’s Law Center, April 2014. The term “mothers of very young children” is defined as women raising at least one child under the age of 3; the data refers to employed workers only. “Low-wage occupations” is defined as occupations with median hourly wages of $10.10 or less.